The Collapse Of Enron

1789 Words4 Pages
bulb-icon

Recommended: Demise of enron

Enron Corp. is a company that reached dramatic heights, only to face a dizzying collapse. The story ends with the bankruptcy of one of America 's largest corporations. Enron 's collapse affected the lives of thousands of employees and shook Wall Street to its core. At Enron 's peak, its shares were worth $90.75, but they plummeted to $0.67 in January 2002 following bankruptcy. To this day, many wonder how such a powerful business disintegrated almost overnight and how it managed to fool the regulators with fake, off-the-books corporations for so long.
Enron Named America 's Most Innovative Company

Enron was formed in 1985 following a merger between Houston Natural Gas Co. and Omaha-based InterNorth Inc. Following the merger, Kenneth Lay,
At the end of the 1990s, the dot-com bubble was in full swing, and the Nasdaq hit 5,000. Revolutionary internet stocks were being valued at preposterous levels and consequently, most investors and regulators simply accepted spiking share prices as the new normal.

Enron participated by creating Enron Online (EOL), an electronic trading website that focused on commodities in Oct. 1999. Enron was the counterparty to every transaction on EOL; it was either the buyer or the seller. To entice participants and trading partners, Enron offered up its reputation, credit, and expertise in the energy sector. Enron was praised for its expansions and ambitious projects and named "America 's Most Innovative Company" by Fortune for six consecutive years between 1996 and 2001.

By mid-2000, EOL was executing nearly $350 billion in trades. At the outset of the bursting of the dot-com bubble, Enron decided to build high-speed broadband telecom networks. Hundreds of millions of dollars were spent on this project, but the company ended up realizing almost no
In July of 2002, then-President George W. Bush signed into law the Sarbanes-Oxley Act. The Act heightened the consequences for destroying, altering or fabricating financial records, and for trying to defraud shareholders. (For more on the 2002 Act, read: How The Sarbanes-Oxley Act Era Affected IPOs.)

The Enron scandal resulted in other new compliance measures. Additionally, the Financial Accounting Standards Board (FASB) substantially raised its levels of ethical conduct. Moreover, company 's boards of directors became more independent, monitoring the audit companies and quickly replacing bad managers. These new measures are important mechanisms to spot and close the loopholes that companies have used, as a way to avoid

Show More
Related

  • Enron Bankruptcy Analysis

    826 Words  | 2 Pages

    Another reason for Enron’s bankruptcy was the unnecessary personal spending by corporate managers. It was a direct loss to the company’s shareholders. In the later stages before its bankruptcy, the luxuries were paid from the company’s borrowing, as it had no real profits. Therefore in the later stages, the creditors were at a loss rather than its shareholders.

    Read More

  • Enron Scandal: A Study in Corporate Fraud

    774 Words  | 2 Pages

    The Enron Scandal, which unrolled in October 2001, lead to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, a large audit and accountancy partnership firm.

    Read More

  • The Enron Disgrace

    2858 Words  | 6 Pages

    The Fastows headed to Mrs. Fastow's native Houston in 1990, both taking jobs at a young company called Enron. Just five years old, Enron was starting to evolve from a natural-gas and pipeline company into a trading firm. Mr. Fastow was one of the first managers hired by Mr. [Jeffrey Skilling], who himself had only recently arrived, from management consultants McKinsey & Co. Brought into Mr. Skilling's inner circle, Mr. Fastow returned the loyalty, telling colleagues he had named a child after his mentor. When Mr. Skilling became Enron's president and chief operating officer in early 1997, he and Mr. [Kenneth Lay] promoted Mr. Fastow to lead a new finance department. A year later, Mr. Fastow became chief financial officer.

    Read More

  • Essay On Enron Scandal

    682 Words  | 2 Pages

    The Enron scandal is one of the biggest scandals to take place in in American history. Enron was once one of the biggest companys in the world. It was the 6th largest energy company in the world. Due to Enron’s downfall investors of the company lost nearly 70 billion dollars. This was all due to many illegal activities done by Eron's employees. One of these employees was Andrew Fastow, the chief financial officer of the Enron corporation had a lot to do with the collapse of the Enron company.

    Read More

  • The Enron Scandal

    608 Words  | 2 Pages

    The Enron Scandal made millions of investors devastated. Enron’s stock prices were at $90.75 per share and fell to $0.61 in one day, which caused them to go bankrupt that day. Enron had experienced tremendous financial losses. The bankruptcy resulted from arrogance, greed from foolishness from the top management all the way down. Enron made lots of mistakes leading to their bankruptcy.

    Read More

  • Accounting Fraud, the Investor and the Sarbanes Oxley Act

    1981 Words  | 4 Pages

    Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).

    Read More

  • Enron's Fall: An Examination of Corporate Ethics

    877 Words  | 2 Pages

    The Enron Corporation was committed to pushing the legal limit as far as possible. Many individuals only seeking to promote their own well-being over any legal or ethical boundaries did this. This was not only isolated with the Enron Corporation, as Arthur Andersen the outside accounting firm and Vinson & Elkins Enron’s law firm were also participants. The key players that led to the collapse of Enron was the founder Kenneth Lay, his successor

    Read More

  • A Corporate Code of Ethics is Not Enough

    2353 Words  | 5 Pages

    Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.

    Read More

  • Remembering the Frauds at Enron and WorldCom

    2739 Words  | 6 Pages

    Enron Corporation started back in 1985. It was created as a merger of Houston Natural Gas and Omaha based InterNorth as a interstate pipeline company (CbcNews). Kenneth Lay was the former chief executive officer of Houston natural gas merged his company with another natural gas line company, Omaha Based InterNorth. During the time of the merger there were many arguments amongst the two companies and in the end Ken Lay the former C...

    Read More

  • Enron

    1167 Words  | 3 Pages

    Enron was in trouble because of something that almost every major corporation during this time was guilty of. They inflated their profits. Things weren't looking good for them at the end of the 2001-year, so they made a common move and they restated their profits for the past four years. If this had worked to their like they could have gotten away with hiding millions of dollars in debt. That completely admitted that they had inflated their profits by hiding debt in confusing partner agreements. Enron could not deal with their debt so they did the only thing that was left to do, they filed for chapter 11 bankruptcy. This went down as one of the largest companies to file for bankruptcy in the history of the United States. In just three months their share price dropped from $95 to below $1.

    Read More

  • Analysis of the Enron/Arthur Anderson Scandal

    1550 Words  | 4 Pages

    Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...

    Read More

  • Essay On The Enron Corporation Scandal

    2377 Words  | 5 Pages

    However, in December 2001 Enron became global interest as the debts of the firm unfolded which led to the largest bankruptcy in US history at that time yet sharehol...

    Read More

  • What Are The Ethical Issues In Enron

    874 Words  | 2 Pages

    Enron was on the of the most successful and innovative companies throughout the 1990s. In October of 2001, Enron admitted that its income had been vastly overstated; and its equity value was actually a couple of billion dollars less than was stated on its income statement (The Fall of Enron, 2016). Enron was forced to declare bankruptcy on December 2, 2001. The primary reasons behind the scandal at Enron was the negligence of Enron’s auditing group Arthur Andersen who helped the company to continually perpetrate the fraud (The Fall of Enron, 2016). The Enron collapse had a huge effect on present accounting regulations and rules.

    Read More

  • The Enron Corporation Case Study

    1339 Words  | 3 Pages

    The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,

    Read More

  • Enron Ethical Dilemmas

    722 Words  | 2 Pages

    Enron has risen to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore tax havens. Enron’s stock price fell from $90 to 50 cents a share.

    Read More

More about The Collapse Of Enron

Open Document